Cal football: The state of the stadium financing

*** My story for the Mercury News and Bay Area News Group is below, but first a few items:

* Here’s the Wall Street Journal’s story on the topic, which appeared Wednesday.

* The financing plan is very, very complicated and will play out over decades, which means there’s room for nuance and interpretation and changing dynamics.

My bottom line: The situation as it stands isn’t good, but it’s not quite dire, either.

* One point that I didn’t mention in the article: Cal is probably going to have an additional, multi-million dollar revenue stream on which to rely for stadium financing and department operations, courtesy of the Pac-12 Network.

The conference hasn’t issued any forecasts beyond Year 1 (break even). As a result, Cal hasn’t included P12Net revenue in its models and I didn’t include anything on the subject in the article below.

But if what I’ve been told comes to fruition in terms of subscriber fees and advertising revenue in years 5+, the conference will eventually distribute millions annually to its schools from the Network.

The story // …

The renovation of Cal’s Memorial Stadium is progressing as planned. The financing is not.

Fundraising efforts to pay for the stadium’s $321 million renovation are “somewhat behind” ambitious goals, athletic director Sandy Barbour said Thursday. The stadium is set to reopen with a Sept 1. game against Nevada.

Using an elaborate financing plan hooked to the sale of premium seats, Cal set a goal of raising $270 million by June 2013. To date, it has just $35 million in cash on hand.

The situation has created concern within a Cal community dealing with rising tuition and slashed budgets, and it was cast in dire tones Wednesday by The Wall Street Journal.

But John Wilton, Cal’s vice chancellor for administration and finance, said that even in a worst-case scenario — in which Cal sells just 70 percent of the premium seats in the next 14 months — the fund established to service the bonded debt would not run out of money until 2038.

“We have a long time to take action,” he said, adding that university officials “will do everything we can” to avoid using state money.

Even if Cal avoids the worst-case scenario, it will take a significant improvement in fundraising for the university to avoid a massive shortfall.

Stanford economics professor Roger Noll, an expert in stadium financing, noted that Cal also must service the debt on the new $153 million Simpson training center: “It’s a long-term, serious financial problem” that, combined with the budget cuts to the UC system, constitute a “double whammy.”

Noll consulted with Cal’s faculty budget committee while the financing plan was being created. He believes the fundraising goals were “extremely ambitious,” especially when compared to similar projects at Texas and Michigan– huge state universities that have first-rate academic reputations but more football tradition than Cal.

“Cal’s proposal was based on the expectation of raising three-to-five times the amount of the other schools,” Noll said. “That seemed implausible.”

Projecting the fundraising shortfall is extremely difficult because of the complicated nature of the financing plan.

It relies on numerous revenue streams, including a facility fee, philanthropy and increased media rights revenue from Cal’s share of the Pac-12 Conference’s $3 billion deal with ESPN and Fox.

But the heart of the financing plan is the Endowment Seating Program, which allows fans to buy 50-year rights to approximately 3,000 premium seats. The payments can be financed over time, like a mortgage, and are placed into a fund that’s used to service the debt.

According to Cal’s latest financial report, which covers donations through March 31, the cash on hand equates to a long-term value of $145 million. That’s slightly more than half the ultimate goal of $270 million.

“The situation is not as bad as the numbers ($35 million) because some of the people who paid the first installment will pay the second,” Noll said.

But the difference between the Endowment Seating Program plan (ESP) and a mortgage — and it’s a monumental difference — is that participants can drop out of the ESP at any time without penalty.

In other words, there’s a chance the $35 million cash on hand won’t ever become the $145 million in Cal’s projections.

Central to the fundraising success is the football team’s performance.

The pressure’s on coach Jeff Tedford, whose team is projected to finish in the middle of the Pac-12 North this fall. Cal is attempting to boost ticket sales and interest in the program by conducting its first spring football game in three years on Saturday.

Jon Wilner

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So if I stop payments on my 100k seats, and opt not to finish, Cal can keep the money and sell my seats? It’s not like they’ll lose out on the value and future profit from the seats so even that scenario doesnt seem that bad.

But my real question is this, is the article about the fact that the projected value of sales is only 144m to date, or that the financing plan, which has been very much public knowledge for the past few years now, is very risky? If so, lets pretend it’s 2009 and make this article relevant.

Pluto99

I just feel bad for the Cal academic programs that are going to suffer because of the AD mismanagement. When the Cal AD comes crawling to the state to pay for this, I’m sure the legislature will be forced to act, but the recourse will be a slashing of the general funding for the UC system overall. More spots for nonresidents, federal liberal arts courses, larger classes. Sad.

Newellbany

As a former professional fundraiser, I can say with confidence that the vast majority of commitments will be paid and the $35 million number is the less relevant datapoint. Plus, new commitments will be solicited and collected upon in the coming decades as prime tickets will still be tied to giving. There is absolutely no reason to hit the panic button now. Even under a perfect storm worst case scenario of weakened collections, the debt service will be easily paid for a long time to come and there will be no fiscal impact on the university general fund.

If there was a panic button to be hit, it was that 30,000 people were in grave danger in the old stadium. That was justified fear – this whole angle that there is a threat of a modest subsidy is not.

Calfan

ESP seating programs are a rip-off and I refuse to bite. I also refuse to pay a boatload of cash for season tickets for me and my kids if they are going to keep jacking up the prices and drop family plans. As much as we enjoy Cal football, they are beginning to price out even generally successful local alumni, and then who’s left?

CoastalMike

When Cal thinks they can raise a lot more football money than U of Michigan and Texas (!!!), they have plainly and deliberately mismanaged. Ah, well, the culprits will all have retired by the time the chickens come home to roost. Sort of like renegade college coaches who wreck programs but leave before the NCAA figures it out.

OT

Another reason for this Cal alum (with 2 degrees, the first of which was earned during the heydays of Harmon “Arena” and the “Six Pac”) to avoid Cal sports events like the plague.

Gross mismanagement, with the emphasis on “gross”.

JohnC

You’ve got to love the irony of a Stanford professor advising Cal on how to finance their stadium renovation. The irony is made richer with Cal ignoring his advice against being “too ambitious.”

Is there a shortage of smart folks in Berkley?

milo

>Is there a shortage of smart folks in Berkley?

No but apparently there a bunch of Douchefurd types who can’t spell.

Any way, who cares if the financing dumps even though there’s been a stated cushion of 28 years…that way you Furds will really be paying for Memorial stadium via taxes.

Does it really matter how much money they receive via the Pac-12 Network system over the next decade if the performance of the team is status quo?

In fact, won’t portions of that “new money” have to go into paying out contracts of Tedford and staff, possibly Montgomery, and then go into the salaries of acquiring new coaching staffs for those sports?

Chill

Cal needs to keep moving forward.

The stadium was unsafe and there was no other choice. If you are going to rebuild, you must do it “right”.

Start by winning. Marketing. Cal is very lucky interest rates are very low now. By the time we get into the corpus of the principle, inflation will make the rebuild seem cheap.

Then get some better fundraising going. This can only happen after the winning and the marketing.

One other stream of $$ that no one has mentioned is naming rights. What the heck? Get it done! Find a socially responsible sponsor. Even the ROSE BOWL sold out to a sponsor. We need to bend a bit on some of our staid principles and to maximally financially support the project.

mal

Use the stadium as a “medical” marijuana flea market during the week. Vendor fees should easily cover the debt service; especially, if more home games with Oregon are scheduled. New calendars could be issued with each day labeled as 4/20.

Don’t count on revenues from Wilner. I hear he’s a bogart.

JD

@ Milo #8 – Classic, but regrettably typical, Kal fan response.

Next time you’re gonna bust somebody for spelling something wrong, please do your utmost to have something approaching proper grammar in your message.

StanTheMan

The new Memorial Stadium is the high-speed rail of college athletics. What a joke. Any serious Cal fan should be absolutely embarassed by everything about this: the cost, the time, the tree sitters, the volumes of environmental studies. And now a half-billion price tag!

Iconoclast

“Cal’s proposal was based on the expectation of raising three-to-five times the amount of the other schools,” Noll said. “That seemed implausible.” What Wilner did not explore is what will be the ultimate costs of the bonds when the interest is figured in? $500M, $600M $1B dollars? What a mess.